EAGA to please?

Carillion plc, the UK infrastructure-to-services group, has announced plans for a further restructuring of the EAGA plc business it acquired back in April 2011 (now re-branded as Carillion Energy Services). Having already been forced into making swingeing job cuts after barely more than six months of ownership, that time as a result of changes to the feed-in tariff (FIT), this week’s announcement raises new questions about the thinking behind the £306m deal. To be fair, few people saw the government’s slashing of FIT on the radar and Carillion deserves credit for battling on.

But it is the reason behind the need for the latest restructuring, rather than the fact of it, that should be of interest for acquirers out there. This time, Carillion has blamed the slow take off in the government’s flagship Green Deal and on-going delays to the Energy Company Obligations (ECO). Despite cross-party agreement on the need to de-carbonise our economy, the Green Deal faces on-going criticism of everything from the rate of return to the IT system for processing orders. With reports that the Treasury is doubtful about its benefits for driving economic growth and Labour now proposing it be replaced with their own scheme, it isn’t just the end-consumers who are questioning its long term prospects.

All this goes to highlight the need for caution amongst acquirers who are attracted to markets with supposedly strong legislative underpinnings. For years, this ranked as one of the big “ticks in the box” for an M&A target, but the continuing pain felt at Carillion Energy Services goes to show the risk to shareholder value of changes to government policy or the failure of the public to put their money where the government’s mouth is. Carillion is big enough to weather the storm, but next time they will undoubtedly be looking beyond the obvious and asking the advisers around them whether there isn’t more to the market than meets the eye.